FED Publishes Results of the 2019 Stress Tests for Banks
FED published a report presenting results of the Dodd-Frank Act Stress Test (DFAST) exercise for 2019. The results of this year’s stress test cycle show that all 18 banks subject to the supervisory stress test exceeded the required minimum capital and leverage ratios under the severely adverse stress scenario. However, in the aggregate, the 18 firms would experience substantial losses under both the adverse and severely adverse scenarios. Nevertheless, these firms could continue lending to businesses and households, due to the substantial build of capital since the financial crisis.
Only the largest and most complex banks were tested this year. As previously announced, smaller and less complex banks were not tested this year and are on a two-year cycle, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The report on the 2019 DFAST results provides:
- Details of the adverse and severely adverse supervisory scenarios used in DFAST 2019
- An overview of the analytical framework and methods used to generate FED’s projected results, highlighting notable changes from last year’s program
- Information about recent efforts to increase transparency
- Additional details about FED’s assumptions in the supervisory stress test
- Results of the supervisory stress test under adverse and severely adverse scenarios for the firms that participated in DFAST 2019, presented both for individual institutions and in aggregate
The results confirm that the largest and most complex banks have strong capital levels that would allow them to stay well above the minimum requirements, after being tested against the severe hypothetical recession. In the severely adverse scenario, losses are projected to be USD 410 billion. The aggregate common equity tier 1 capital ratio would fall from an actual 12.3% in the fourth quarter of 2018 to its minimum of 9.2%, before rising to 9.7% at the end of nine quarters. Loan losses in this year's stress test are broadly comparable to those from past years. Credit card loans showed the highest losses, followed by commercial and industrial loans.
The DFAST cycle begins in the first quarter of 2019 and ends in the first quarter of 2021. The firms tested this year represent about 70% of the assets of all banks operating in the U.S. Results of the Comprehensive Capital Analysis and Review, or CCAR, will be released on June 27, 2019.
Related Links
Keywords: Americas, US, Banking, Stress Testing, Dodd-Frank Act, Stress Test Results, DFAST, CCAR, Basel III, EGRRCP Act, FED
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Previous Article
EBA Single Rulebook Q&A: Third Update for June 2019Related Articles
FSB Report Finds Steady Increase in Climate-Related Disclosures
FSB published the annual report that examines to-date progress toward implementation of climate-related disclosure recommendations of the industry-led Task Force on Climate-related Financial Disclosures (TCFD).
PRA Consults on Proposals to Support Transposition of BRRD2
PRA launched a consultation (CP18/20) setting out proposals for the "Contractual Recognition of Bail-in" and "Stay in Resolution" Rules.
APRA Consults on Reporting Standard for Credit Risk Management
APRA is consulting on the reporting standard for credit risk management (ARS 220.0).
EC Proposes to Amend Liquidity Coverage Rules for Covered Bond Issuers
EC published draft of a delegated regulation amending liquidity coverage rules for covered bond issuers.
ESMA Confirms Endorsement of UK Credit Ratings Post Brexit Transition
ESMA published an update to its March 2019 statement on the endorsement of credit ratings from UK.
FASB Consults on XBRL US DQC Rules Taxonomy and Technical Guides
FASB is consulting on the XBRL US Data Quality Committee (DQC) Rules Taxonomy (DQCRT) along with two technical guides.
PRA Updates Q&A on Branch Return Form
PRA published Version 2 of the questions and answers (Q&A) on the Branch Return form.
Regulators Fine Goldman Sachs for Risk Management Failures
FCA and PRA in the UK, FED in the US, and the authorities in Singapore have fined Goldman Sachs for risk management failures in connection with the 1Malaysia Development Berhad (1MDB).
ISDA Launches IBOR Fallbacks Supplement and Protocol
ISDA launched the IBOR Fallbacks Supplement and the IBOR Fallbacks Protocol, with both becoming effective on January 25, 2021.
Canada Hosts International Conference of Banking Supervisors
BCBS announced that OSFI and the Bank of Canada hosted the 21st International Conference of Banking Supervisors (ICBS) virtually on October 19-22, 2020.
